LESSON 2 PREPARING A BUSINESS PLAN

Definition

BUSINESS PLAN is “a formal statement of a set of business goals, the reasons why they are believed attainable,
and the plan for reaching those goals. It may also contain background information about the organization or team
attempting to reach those goals.”

Focus of a Business Plan

Business plans target intermediate goals required to reach the external goals.

Categories of a Business Plan

1. Business Plan For Profit – Typically focuses on financial goals

2. Marketing Plan – Targets changes in perception and branding as its primary goals
3. Project Plan – Describes the goals of a particular project
4. Business Plan for Non-Profit and Government Agency – Tends to focus on service goals.
5. Operational Plans – Describes the goals of an internal organization, working group or department.

Contents of Business Plan

1. Executive Summary – guides proponents or investors on the overall feasibility of the proposed project at a glance.

2. Project Background and History – it narrates the project conceptualization, and details the events that led to the
study.

3. Management and Personnel Feasibillity – It pinpoints the project’s general to specific market feasibility topics.

4. Production Feasibility – refers to the manufacturing aspects of the product.

5. Financial Feasibility – enables the entrepreneur to know how much capitalization will be needed to finance the project
and who will be the project’s financers.

6. Socio Economic Feasibility – viewing the project’s feasibility only from the point of view or from the standpoint of the
project’s proponents/investors.

7. Project Implementation and Timetable – These include the details of all activities to be considered during the project’s
pre-investment and pre-operating phase and also the timetable of each of these activities.

BUSINESS PLAN OUTLINE

1.0 Executive Summary

2.0 Opportunity
2.1 Problem worth Solving
2.2 Solution
2.3 Mission and Vision Statement
3.0 Market Analysis Summary
3.1 Market Segmentation
3.2 Target Market Segment Strategy
3.2.1 Market Needs
3.2.2 Market Trends
3.2.3 Market Growth
3.3 Key Customers
3.4 Future Markets
3.5 Competition
3.5.1 Competition and Alternatives
3.6 SWOT Analysis

4.0 Execution
4.1 Marketing Plan
4.2 Sales Plan
4.3 Location and Facilities
4.4 Equipment and Tools
5.0 Production Plan
5.1 Product Description
5.2 Production Process
5.3 Tools and Equipment
5.4 Raw Materials and Availability
5.5 Production Cost
6.0 Company and Management Summary Organization Structure
6.1 Organizational Structure
6.2 Company History and Ownership
6.3 Management Team
6.4 Management Team Gaps
6.5 Personnel Plan
6.6 Personnel Policies
7.0 Financial Plan
7.1 Total Project Cost
7.2 Projected Profit and Loss (5 years)
7.3 Projected Balance Sheet ( 5 years)
7.4 Business Ratios
7.4.1 Break-Even Analysis
7.4.2 Gross Profit Analysis
7.4.3 Cash Payback Period
7.4.4 ROI
8.0 Business Implementation and Timetable

Feasibility Study

The preparation of a Business Plan compliments the project Feasibility study. The feasibility study is a major
information source in making a critical decision whether to go or not to go into the business.

The advantages of writing down the results of the feasibility study are as follows:
 The findings can be set out in a clear and logical way, so that potential lenders can understand the business and
its likely risks/advantages. The document helps the entrepreneur to clarify and focus his/her ideas.
 It is a reference material that can be used to plan long term development of the business.
 The plan can be regularly consulted and updated as a guide to the business development.
 Mistakes can be made on paper rather than in the operation of the business.
 When the plan shows that a successful business is possible, it makes the entrepreneur feel more confident to
succeed.
 It helps the entrepreneur to decide on how much money is needed and if properly prepared, it gives the loan
agency confidence that their money will be repaid.

1. Conducting a Feasibility Study

 An idea for a business is not a sufficient reason to begin production straight away, without having thought clearly
about the different aspects involved in actually running the business.

 Conducting a feasibility study need not to be difficult or expensive, but the most important aspects should all
be taken into account to ensure that potential problems are addressed.

Questions that can be answered by a feasibility study are addressed:

 Is there a demand for the product? (Find out the characteristics required of the product and the size
and value of the market)
 Who else is producing similar products? (Determine the number and type of competitors)
 What is needed to make the product? (Find the availability and cost of staff, equipment, services, raw
materials, ingredients and packaging.)
 What is the cost of producing a product? (Calculate the capital costs of getting started and the operating
costs of production)
 What is the likely profit? (Calculate the difference between the expected income from sales to an
estimated share of the market and the costs of production)

2. Comparison between a Feasibility Study and a Business Plan

a. A feasibility study is conducted before a decision to proceed (go/no go)
b. A business plan is prepared after a decision to proceed (go/no go)
c. A feasibility study provides an investigative function
d. A business plan provides a planning function

LESSON 3 MARKET ANALYSIS

 To start a business, the first thing to do is to find out what is the demand for the product by conducting a short
market survey.

 It is important to think in advance about the type of information that is needed and to ask people the same
questions each time, so that their answers can be compared and summarized.

Sample Questionnaire

Tomato Jam

QUESTIONS ANSWERS
1. Do you eat other types of Jam? Yes ___ No ___
2. Which types of jam do you like best? List the types
3. Do you think you would like tomato jam? Yes ___ No ___ Not Sure ___
1 2 3 4 5
Very Good Average Bad Very
Good Bad
4. What do you think of the color of this tomato jam?
5. Do you like having the seeds in the jam?
6. What do you think about the flavor of this jam?
7. Do you like the texture of the jam?
 8. What do you think about the jar?
9. What do you think about the label?
10. What else do you like about this jam?
11. Is there anything that I can do to improve this jam?

Sources of New Product/Service

1. CONSUMER – Monitor potential ideas and needs from customers and formally arrange for consumers to express their
opinions.
2. EXISTING PRODUCTS AND SERVICES – Analysis of products and services uncovers ways to improve offerings that
may result in ia new product or service.
3. DISTRIBUTION CHANNELS – Channel members can help suggest and market new products
4. GOVERNMENT (PATENT OFFICE) – Files of the Patent Office can suggest new product possibilities. New product ideas
can come in response to government regulations.
5. RESEARCH AND DEVELOPMENT – Conduct research on your market and your customer needs. This results to the
development and identification of new and improved product and services.

Methods of Generating New Products/Services

1. Focus Group
A moderator leads a group of 8 to 14 participants through an open, in-depth discussion in a directive or
nondirective manner. This is an excellent method for generating and screening ideas and concepts. It allows people to
be stimulated to greater creativity.

2. Brainstorming
Good ideas emerge when the brainstorming effort focuses on a specific product or market area.

Rules on brainstorming:
a. No criticism of ideas or suggestions. Every idea even the wildest, non-feasible idea is accepted.
b. Freewheeling discussion is encouraged.
c. Quantity of ideas is desired.
d. Combinations and improvements or ideas are encouraged.

3. Problem Inventory Analysis

Consumers are provided with a list of problems and are asked to identify products that have those problems
Results must be carefully evaluated as they may not actually reflec a new business opportunity.

Generating New Product/Services for Conventional or Innovative Businesses

1. Conventional business scenario

Below are the ways to start conventional business
a. Start a business that you are familiar with
b. Start a business due to the needs of existing business contacts
c. Gain business inspiration from your hobby or interest
d. gain inspiration from an imported item
e. Explore the possibility of import business

2. Innovative business scenario

Here are some ways to introduce an innovative business.
a. Gain inspiration from the needs and wants of customers.
b. Gain an inspiration from the problems and issues that bothered you and your peers
c. Study the usual or existing solutions and venture in the alternative solution
d. List down existing products and find out their other uses aside from what was stated.

Survey of Market Size and Value

A different set of questions is needed when assessing the size of the market for a particular type of product and
the value of the market (the amount of money spent on that product each month or year)

This involves making a number of assumptions and it is important to consider the following:
1 Are the people interviewed really represent all potential consumers?
2 Was the number of people interviewed enough?
3 Were people giving accurate information?

Sample questionnaire about market size and value

QUESTIONS ANSWERS
About the market size:
1. How often do you buy this product? __ Daily __ Weekly __ Monthly
2. Do you buy different amounts at different times of the year? __Yes ___No
3. When are the times that you buy the most?
4. How much do you buy each time? ___ pc.
5. When are the times you buy the least?
6. How much do you buy each time? ___ pc
7. What is the amount of food in the pack? P ____ per ____ pc
About the market value:
8. How much do you pay for a pack of the food? P_________
 9. What is the price difference for larger or smaller packs? P____
10. Does the price change at different times of the year. ___ Yes ___ No
11. When is the price highest?
12. When is the price lowest?
About the customer:
13. Would you say that you have a low, medium, or high income in your
household.
14. To which age group do you belong? (check one only)
1-20
21-40
49-60
Male/Femaile
About Sales Outlests:
15. Where do you usually buy this food (check one ony)
Food Store
Local Shop
Kiosk
Supermarket
Others

Market Share and Competition

Market surveys and the calculation of market size and value are important to find out whether the demand for
a product really exists.

Market Share estimates the proportion of the total market that a new business could reasonably expect to have.

Sample

No. of other
Many Few One
producers
Size of None
Large Small Large Small Large Small
competitors
Product Range S D S D S D S D S D S D
Market Share (%) 0-2.5 0-5 5-10 10-15 0-2.5 5-10 10-15 20-30 0-5 10-15 30-50 40-80 100
S = Similar products, D = Dissimilar products

Competitors

Competitors are very important to the success or failure of a new business. The entrepreneur should recognize
that there are different types of competitors.

 General competitors
 Type competitors
 Brand competitors

New entrepreneurs must therefore assess each of these factors using SWOT Analysis.

Sample

My proposed business Competitor A Competitor B

Strengths Production likely to be
sited close to retailers that
can deliver at short notice
Weaknesses Difficult to find good
packaging
Opportunities Retailers say demand for
products without additives
is increasing I can produce
without added colors.
Threats There are few wealthy
consumers and price is
most important factor. I
am not yet sure of
production costs
Good brand image and
range of products
Products more expensive
than B. Uses synthetic
colors and preservatives
Strong promotion by A.
Cheaper products than B
Product is cheaper than A
and sells well. They offer
good margin to retailers.
Poor quality product, poor
label design. Retailers tell
me that supplies are
irregular and not always,
the amount ordered.
Appears to be expanding
deliveries to new areas
according to newspaper
reports.